BNZ says to secure loans businesses need strong fundamentals and home buyers need cashflow and job security

BNZ says to secure loans businesses need strong fundamentals and home buyers need cashflow and job security

By Gareth Vaughan

BNZ says it's keen to lend money to businesses and home buyers with the caveat the businesses have strong fundamentals in place and the would-be home owners have solid cashflow and good employment prospects.

Andrew Thorburn, BNZ's chief executive, told that the most significant factor the bank noticed in its financial year to September was a lack of businesses investing. BNZ released its annual results yesterday and figures from its parent, National Australia Bank (NAB), predicted a 2.5% fall in system-wide New Zealand business lending this year. Alongside a forecast 4.1% fall in personal lending and 3% rise in housing lending, NAB forecast just 0.5% total systems lending growth this year.

Saying system credit growth in New Zealand had "stopped", NAB predicted just 0.4% total lending growth next year and then 3.5% in 2012.

In the business sector Thorburn acknowledged companies had been deleveraging, which in principle he said was a good thing. Earlier this year BNZ said it had relaxed lending criteria for small businesses, which it defines as companies with annual turnover of up to NZ$1 million or five or less employees. This, the bank said, led to a sharp turn around in the number of loan applications it was approving and a lift in BNZ's small business market share.

However, Thorburn said credit settings for mid-sized and larger businesses over the last 18 months hadn't changed much, and there were no plans to ease them.

"What we do need to say is we want to bank businesses that are ready for growth and being run well and have got the basics in place," said Thorburn.

"We’ve seen banks around the world, where they have deviated from that principle, that’s where problems have emerged. We’re certainly keen to grow, we’re certainly open for business."

"(But) what we’re really saying to businesses is 'look, you need to have your business fundamentals right. You need to have a clear business plan with a clear proposition about what is your competitive advantage. You need to have cash flow and financial forecasts, you need to have good governance and you need to understand some scenarios that may go against you and how you’d handle them'," Thorburn said.

BNZ was making it clear to customers and potential customers what it needed from them and why. This was good for the businesses, the economy and BNZ over the short, medium and long-term, Thorburn added.

"I think what we’re doing in doing that for New Zealand is really supporting businesses to get on the right footing so that over the course of the next two, three, five years we’ve got businesses that are going to continue to be sustainable and win, not just have a short term kick up."

As for the housing market, which accounts for 47% of BNZ total lending portfolio, Thorburn said the overall market had grown 3% this year with BNZ a little ahead of that. He predicted 2-3% systems growth next year. The latest Reserve Bank data shows total business lending down 6.6% year-on-year in August at NZ$72.3 billion with housing lending rose 2.4% to NZ$169.4 billion.

'Room to grow in housing'

Thorburn said BNZ remained keen for mortgage market growth with the "right" clients.

"Where there’s good positive cashflow and where we’re able to acquire new to bank clients because our market share in housing is about 15-16% so we’ve certainly got some room to grow there," he said.

The "right clients", have cashflow and good employment prospects, especially given the latest official unemployment level of 6.8% and forecasts for it to remain above 5% next year.

Reserve Bank data shows mortgage approvals by volume down by 25% year-on-year for each of the last three weeks and 27% by value. Against this backdrop, ASB, ANZ, National Bank and Westpac are going the extra mile to try and entice home buyers into the market and incentivising mortgage brokers to bring them business.

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"Entice" is so pc. I have another word for this behaviour. The BNZ has every intention of blowing the bubble bigger and they do not give a shite about the consequences to average Kiwi families when rates move up and employment is will find the bank will regard you as a problem to be removed asap and the property sold at mortgagee auction forwith before the market slides any further.

Bollard is currently pushing the banking sector demand for open access to the QE garbage being 'printed' overseas. The word has gone across to Key and the Cabinet. The banks want to sell 'covered bonds' to raise a Tsunami of credit they can sell to foolish families because the banks are desperate to protect the property ponzi bubble. The CFR is a standing joke. The public are being suckered good and proper.

Avoid credit on offer. Get out of debt. Sit back and watch as the property values slide faster down to where they are affordable on the pisspoor wages in Noddy. What you have seen happen in the retail sector with sales and falling prices for junk you don't need...will take place in the property sector. But only if you avoid the banking mortgage bait. 

Wolly, not protect the bubble ... just between you, me and the gatepost .. this is what I call the "final push" by the banks to pump the bubble till it burts... objective being the next step which is tax-payer bailouts (think NZ's version of TBTF) and of course more profits.

Wally - here's an idea - adjustable rate mortgages (ARMs). Think that would help? I think they used em' up in northern hemisphere somewhere.

Sorry slightly off topic

For Andrew in F and GBH

Can anyone explain the concept of freegold please?  It takes a lot of reading and it still seems obscure.

Yeah, good luck trying to figure it out without spending hours trawling through old blog posts. This is one interpretation I found:

There is this comment here

as well.

What I was thinking was that it something like this;

A central bank says that 15% of it's assets are gold, no matter how much physical gold assets it has.  The amount it actually has is irrelevant, so long as it's not zero.  Each central bank could pick a figure for this percentage, if it's 100% it's saying that none of the other assets on it's balance sheet count, and you have the old fashioned gold backed currency - I guess.

So it then marks the price of it's gold to the market ie if 15% of it's assets are gold, it knows exactly how much of it's fiat have been printed (for nothing Andrew in F) it divides 15% of its printed currency on isse by the amount of gold in it's vaults and stands in the physical market at this price.

So, if it has a small amount of gold in the vaults compared to the currency on issue the gold floods in but because it's physical the rate at which this can happen is limited.  It costs nothing for the bank to buy the gold because they buy it with plain old printed currency.

Of course the gold that's coming in has to come from somewhere.  It's coming from a central bank that has a lot of gold and as a consequence the "price" is low.

What if there is a run on the central bank's gold?  First, there is a physical limit to the rate it can be withdrawn.  Second, the central bank says as soon as I sell more than x % of the gold (say a couple of percent of it) I reserve the right to reprice it.  The price goes up by the same formula 15% of the money in circulation divided into the weight of gold in the vault = the price.  Therefore the central bank will never run out of gold to sell.  At some point the price will go up enough to tempt holders of gold to forego the physical and sell it for fiat.

It seems to me that this is a self stabilising system.  But  I've not seen the above description anywhere.